Documentation Counts: Filing an Audit Proof Return

Over the next few weeks I am going to feature some tax tips for you to consider with your clients. 

The first in this series is about better collaboration between advisors and clients on filing audit-proof tax returns.

Every new list of tax tips must start with this one:  filing an audit proof tax return begins with filing it on time - which means midnight April 30 for most people; June 15 for unincorporated small business owners and their spouses.  But if you owe – whether or not you qualify for the later deadline – the interest clock will start ticking on May 1.  It’s always surprising to me how many taxpayers don’t know these very preliminary groundrules.

CRA usually won’t want tax receipts on filing but of course the taxpayer must be prepared to retrieve them in the future during an audit.  It’s another commonly misunderstood rule;  especially in the electronic world we file in.

The problem is common:  everyone is really busy and gathering tax filing documents is a pain, because it takes a lot of time to sort out all the income, deductions and credit slips needed to do the returns.

But remember, the trick to the whole tax filing exercise is to pay only the correct amount of tax--not a cent more. This is about what you keep.  If you’re a tax advisor, consider having this conversation with your new clients:  Tax preparation is a starting point in sound tax and investment planning that will help you accumulate, growth, preserve and transition wealth to your family for greater peace of mind in your future.  You’ll get to have more fun, sooner too, because you have the money to make better financial choices.

Also, remind them that the record retention period is six years after the end of the year in which the return is filed.  Keeping books and records is also a nightmare for most taxpayers, but fortunately, because tax pros can now scan and keep those documents electronically; they can provide an excellent value-added service to eliminate bookkeeping stress throughout the year.

In fact, tax advisors who wish to offer all year long “electronic filing drawer services”  for clients whose bookkeeping is brutal may find themselves at the centre of deeper planning conversations all year long as well.

It’s Your Money. Your Life. Perhaps visiting your tax advisor with your shoeboxes monthly to get the detail into their hands and the strategic plan into yours might be a financially empowering opportunity.  It’s a great way for pros and taxpayers to get “out of the weeds” and into the Real Wealth Management discussions that will increase family wealth.

Evelyn Jacks is President of Knowledge Bureau, a national educational institute focused on continuing professional development courses for advisors. See www.knowledgebureau.com for an invitation to the Knowledge Bureau Report, or register for professional online courses to shore up your knowledge on tax, retirement, business, succession and bookkeeping services.